Bilibili's (NASDAQ:BILI) stock surged more than 60% over the past 12 months as the Chinese tech company dazzled investors with a streak of robust revenue growth. Yet Bilibili remains unprofitable, and the stock isn't cheap at five times next year's sales.

Despite those challenges, I believe that five tailwinds could lift Bilibili's stock even higher in 2020.

1. The growth of China's Gen Z market

Bilibili's platform provides anime, comics, and gaming (ACG) content. The company claims that members of China's Generation Z, who were born between 1990 and 2009, account for over 80% of its users.

iResearch claims that China's online entertainment market will be worth 1.1 trillion yuan ($160 billion) by 2023, and that Gen Z users will account for nearly two-thirds of that market. That explains why Bilibili's monthly active users (MAUs) grew 39% annually to 127.9 million last quarter.

A group of young adults takes a selfie.

Image source: Getty Images.

2. Rising user loyalty

Bilibili promotes its users to "official" site members if they pass a 100-question entrance exam regarding ACG content within two hours. Its total number of official members rose 46% annually to 62 million last quarter, and the program has a retention rate of about 80%.

The stickiness of that ecosystem makes it easier for Bilibili to convert official members to paid users via premium subscriptions and other value-added services (VAS). That's why its total number of monthly paying users more than doubled to 7.9 million last quarter. Within that total, 6.1 million users were locked into recurring subscriptions.

3. A better-diversified business

Back in 2017, 83% of Bilibili's revenue came from mobile games. However, it repeatedly stated that it would reduce that percentage to 50% over the next few years by expanding its digital ecosystem into adjacent markets.

That effort paid off, and Bilibil generated just over 50% of its revenue from mobile games last quarter. Roughly 24% came from live video broadcasts and VAS, 13% came from digital ads, and 12% came from its e-commerce marketplace.

4. Immunity to macro headwinds

Many Chinese companies struggled with the U.S.-China trade war and China's economic slowdown over the past two years. For example, Baidu's (NASDAQ:BIDU) ad revenue withered, and Alibaba (NYSE:BABA) e-commerce growth decelerated.

However, those headwinds didn't faze Bilibili, which posted accelerating revenue growth across most of its businesses last quarter:

YOY revenue growth

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Mobile games

24%

15%

27%

16%

25%

Live broadcasting & VAS

292%

276%

205%

175%

167%

Online advertising

179%

302%

60%

75%

80%

E-commerce and other

(20%)*

254%

621%

489%

703%

Total

48%

57%

58%

50%

72%

YOY = Year-over-year. Source: Bilibili quarterly reports. *Due to spin-off of its offline events business.

Its mobile gaming business continued growing, thanks to the popularity of its flagship game Fate/Grand Order. Its live video revenue continued rising on sales of virtual gifts and premium subscriptions. Its digital ecosystem also continued expanding with its investments in animation studios and its takeover of NetEase's digital comics unit.

Bilibili's ad revenue also jumped as cash-strapped advertisers pivoted their spending from older platforms like Baidu toward Gen Z-oriented ones like Bilibili and ByteDance. Its e-commerce marketplace, which sells tie-in products for its ACG content, also grew significantly as it tightened its integration with Alibaba's Taobao.

A young woman checks her smartphone at night.

Image source: Getty Images.

Bilibili's core businesses withstood China's economic slowdown, so the company's growth could accelerate in 2020 if recent developments -- including the "phase one" trade deal and China's stimulus plans -- reinvigorate the country's sluggish economy.

5. Takeover potential

Tencent (OTC:TCEHY) and Alibaba are already major stakeholders in Bilibili. Both companies consider Bilibili to be a key buffer against the meteoric rise of ByteDance, which surpassed Baidu as China's second-largest advertising platform last year.

ByteDance's top apps, TikTok and Toutiao, both target Gen Z users. If ByteDance continues growing, the pressure could mount for Tencent, Alibaba, and other aging tech giants to completely take over Bilibili, which has a fairly low enterprise value of $7 billion. Investors should never buy a stock on buyout buzz alone, but I wouldn't be surprised if the tech giants launched a bidding war for Bilibili in 2020.

The key takeaway

Bilibili isn't the ideal stock for risk-averse investors, since its losses are widening and it doesn't have a clear path toward profitability. However, investors looking for a Chinese growth stock with long-term tailwinds should consider accumulating some shares of Bilibili -- even as it hovers near all-time highs.